The IRS’ Office of Professional Responsibility (OPR) has lost several key court cases recently. OPR, for those who have never heard of the agency, is charged with ensuring that tax preparers and tax practitioners adhere to high professional standards and follow the law.
OPR’s clout has been seriously reduced by a recent series of court cases. Earlier this year in Loving vs. IRS, a federal appeals court struck down the agency’s ability to regulate non-practitioners. While CPA’s, lawyers, enrolled agents and tax return firms such as H&R Block are all subject to regulation, there are an estimated 350,000 “mom and pop” practitioners, many working from their kitchen table or seasonal store fronts. The IRS sought to regulate those folks and insure they had minimal training. The court said no.
This summer the agency suffered a second defeat in Ridgely v. Lew, a case that said that the IRS could no longer prevent practitioners from charging contingent fees. The IRS worries that more people will file challenges and take questionable positions on refund claims since they will no longer have to front legal fees. Taxpayers welcomed the decision for those very reasons; permitting contingent fee arrangements makes legal services more affordable to many.
On the heels of these two cases comes Sexton v. Hawkins, now pending in a Nevada federal court. Although the case is still pending, an order issued two weeks ago by Judge Richard Boulware, looks anything but good for the IRS. It may not bode well for taxpayers, either. At its core, the question is whether OPR can stop a convicted felon from preparing tax returns.
James Sexton is a lawyer from South Carolina. In 2005, he pleaded guilty to mail fraud and money laundering. Although the court records from his conviction are no longer available, published reports suggest he was the mastermind of an investment scam where investors’ funds were diverted offshore to an account controlled by Sexton. (We do know, however, that in 2009 the court found that Sexton had satisfied his restitution requirements.)
In 2008, OPR suspended his ability to appear before the IRS.
Since 2008, Sexton has apparently been giving tax advice and preparing tax returns in Las Vegas. The IRS got wind of his activities and in 2013 sent him a letter seeking information about his activities and threatening sanctions.
Sexton sued the IRS and the government sought to dismiss the suit. The court denied the government’s dismissal motion on October 30th meaning Sexton’s suit against the IRS will go forward.
So should OPR be allowed to regulate the ability of a convicted felon to prepare returns? We say yes, although the law probably favors Sexton on this issue. Courts have already decided that the IRS has no authority to regulate non-practitioners and that merely preparing returns is not “practicing” before the IRS. (Because Sexton is suspended, he technically isn’t a practitioner either.) There is an open issue about providing tax advice but that probably may not qualify as practicing before the agency.
Legislation has been introduced to give OPR ability to regulate non-practitioners but given the recent election results, that legislation probably won’t find traction in a Republican controlled Congress.
This case involves far more than the ability of James Sexton to provide tax advice and file returns for clients. The IRS has for years regulated those who prepare tax returns, provide tax advice and appear before the IRS during appeals. Recent court rulings suggest that much of those activities are beyond the reach of the IRS under current law. Should Congress act, one must balance protecting the public and making sure that the public has access to affordable and independent tax representation.
If you think you were provided bad accounting or tax advice or are the victim of an abusive tax shelter, give us a call. We assist taxpayers before the IRS and help people bring claims for accounting malpractice and against shoddy tax preparers.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries kept in strict confidence.